Third-Party Funding in Nigeria Arbitration (Arbitration and Mediation Act 2023): Disclosure, Security for Costs and Ethics

Third-party funding has moved from a legally uncertain practice to an expressly recognised feature of Nigeria’s arbitration framework. In 2026, it is becoming increasingly relevant to commercial parties considering how to finance disputes. The Arbitration and Mediation Act 2023 provides statutory recognition for funding arrangements, addressing longstanding uncertainty under the common law doctrines of maintenance and champerty. As the use of funding grows, tribunals seated in Nigeria may pay closer attention to funder disclosure, applications for security for costs, and the ethical issues surrounding counsel independence.

This article examines the practical considerations involved in using third-party funding in Nigeria-seated arbitration, including its statutory recognition, disclosure obligations, security for costs, funding agreement terms, and professional ethics. These are important considerations for in-house counsel, CFOs, claims owners and funders before entering into a funding arrangement.

Who this is for: In-house counsel, CFOs, claims owners, funders and arbitration counsel assessing the risks of third-party funding in Nigeria-seated arbitration.

What you will get: An analysis of the Arbitration and Mediation Act 2023 provisions on third-party funding, a disclosure checklist, the considerations relevant to security for costs applications, practical drafting points for funding agreements, and guidance on professional ethics.

Why Third-Party Funding Matters in Nigeria in 2026

For years, claimants with strong cases but limited financial resources faced a difficult choice: finance an expensive arbitration themselves, settle early for less than their claim might be worth, or abandon the claim altogether. Third-party funding offers another option. A specialist funder finances the pursuit of a claim in exchange for an agreed share of any recovery. This allows claimants to pursue claims without bearing the full cost themselves, while transferring some of the financial risk to a funder.

The legal position in Nigeria has also changed. The Arbitration and Mediation Act 2023 expressly recognises third-party funding in arbitration, addressing longstanding uncertainty over whether such arrangements were prohibited by the common law doctrines of maintenance and champerty. This statutory recognition, alongside growing interest from international and regional funders in African disputes, has brought greater attention to funding in Nigeria.

However, recognition does not remove the procedural and ethical issues that funding can raise. Tribunals may need to consider the identity and role of a funder, the extent of its influence over the proceedings, and whether a respondent has grounds to seek security for costs where the funded claimant may be unable to meet an adverse costs order.

Understanding third-party funding in Nigeria therefore requires consideration of both its commercial benefits and the legal and procedural risks that may arise.

Legal Recognition Under the Arbitration and Mediation Act 2023

One of the most significant developments under the Arbitration and Mediation Act 2023 is its express recognition of third-party funding in arbitration. The Act removes the application of the common law torts and offences of maintenance and champerty to third-party funding arrangements connected with arbitration seated in Nigeria. Under the previous framework, funders and claimants faced uncertainty arising from these doctrines, which were intended to prevent improper interference in another party’s litigation. The Act addresses that uncertainty in arbitration proceedings and supports Nigeria’s efforts to attract international arbitration and funding for viable claims.

However, statutory recognition is only part of the picture. Funding arrangements can also raise procedural issues that tribunals may need to address, including disclosure of a funder’s involvement and applications for security for costs. The Act gives tribunals powers to manage arbitral proceedings, but the precise basis for any disclosure requirement or security for costs order must be considered in light of the relevant statutory provisions and applicable arbitration rules. Parties considering third-party funding should therefore assess both its legal recognition and the procedural issues that may arise during the arbitration.

The Position Before 2023 and What Has Changed

Before the 2023 Act, the common law doctrines of maintenance and champerty created uncertainty about the enforceability of third-party funding arrangements in Nigeria. A funding agreement could face a challenge on public policy grounds, potentially affecting the funder’s ability to recover its agreed return. This uncertainty could also discourage domestic claimants and international funders from pursuing Nigeria-seated arbitration.

The statutory change has altered the commercial position. Funders can assess Nigeria-seated claims with greater certainty that the funding arrangement itself will not be defeated by the application of maintenance and champerty. Their decisions can therefore focus more directly on the merits of the claim, the prospects of enforcement and the likely return on their investment.

For claimants, this may improve access to funding and broaden the range of potential funders. For respondents, third-party funding is now a recognised feature of the arbitration landscape. The focus shifts to the procedural and financial implications of a funded claim, including whether disclosure is required and whether the circumstances justify an application for security for costs.

Is Third-Party Funding Legal in Nigeria for Arbitration?

The direct answer is yes. Third-party funding is lawful for arbitration seated in Nigeria, with express statutory recognition under the Arbitration and Mediation Act 2023. This provides a clearer legal foundation for funders and claimants, without the previous uncertainty surrounding maintenance and champerty.

There are, however, important caveats. Recognition does not exempt a funding agreement from ordinary contract principles or public policy considerations where its terms are unlawful or abusive. Parties should also distinguish the legality of funding from the procedural treatment of a funded claim. A lawful funding agreement does not prevent a tribunal from considering an application for security for costs where the circumstances justify it.

The Act’s treatment of maintenance and champerty is not limited to the arbitration hearing itself. Section 61 applies to arbitration seated in Nigeria and related court proceedings within Nigeria. Funding for other forms of court litigation should therefore be considered separately.

The practical consequences differ by role. For funders, statutory recognition provides greater certainty when assessing Nigerian-seated cases, subject to due diligence on enforcement prospects. For claimants, it creates opportunities to access capital, although funding terms may affect control over the proceedings and settlement. For respondents, the focus shifts from challenging funding as inherently impermissible to considering relevant procedural issues, including disclosure and security for costs.

Disclosure of Third-Party Funding in Nigeria Arbitration: Tribunal Powers, Timing and Best Practice

Disclosure is where statutory recognition meets the practical realities of arbitration. Section 62 of the Arbitration and Mediation Act 2023 requires the funded party to give written notice of the funder’s name and address to the other parties, the tribunal and, where applicable, the arbitral institution. International arbitration rules and guidance also reflect the importance of funder disclosure, particularly in identifying potential conflicts of interest. In Nigeria-seated arbitration, compliance with the statutory disclosure requirement is essential, while further disclosure may depend on the circumstances and applicable rules.

When Is Disclosure Required?

Section 62 establishes when notice must be given. Where the funding agreement is made before or at the commencement of arbitration, notice must be given at commencement. Where the agreement is made after proceedings begin, notice must be given without delay. The Act also addresses the relationship between funding disclosure and applications for security for costs.

Further information about a funding arrangement may become relevant in particular circumstances, including:

• Conflicts of interest. The funder’s identity allows potential connections between the funder and an arbitrator to be identified and assessed.

• Material influence or control. Where concerns arise about a funder’s influence over strategy, settlement or the appointment of counsel, the relevant funding terms may require closer examination.

• Costs risk and security applications. Where a respondent applies for security for costs, the tribunal may allow the funded party or its counsel to provide an affidavit stating whether the funder has agreed to cover an adverse costs order. Section 62 makes that affidavit a relevant consideration in deciding the application.

What Should Be Disclosed?

Section 62 expressly requires disclosure of the funder’s name and address. It does not impose a general obligation to provide the entire funding agreement. Further disclosure should be considered in light of the issue at hand and any applicable arbitration rules.

Where additional information is relevant, the following may require consideration:

• Identity of the funder. The funder’s name and address are mandatory disclosures under the Act. Further corporate information may be relevant where necessary to assess potential conflicts.

• Existence and general nature of the arrangement. Confirmation that funding exists may assist the tribunal and parties in understanding the arrangement, although the statutory notice specifically requires the funder’s name and address.

• Control and termination rights. Provisions governing influence over strategy, settlement decisions and termination may become relevant where questions arise about control or the funder’s commitment to meet adverse costs.

How to Protect Confidentiality

Confidentiality remains an important concern for funded parties and can often be managed alongside disclosure. Where further information is sought, parties may request that commercially sensitive terms, such as the funder’s return and pricing, be redacted where appropriate. They may also seek procedural directions restricting the use or circulation of disclosed material. Funding agreements should expressly permit disclosures required by law, the tribunal or applicable arbitration rules, helping to avoid a conflict between contractual confidentiality and disclosure obligations.

A practical disclosure checklist should cover the following stages:

• Pre-commencement. Review the funding agreement and prepare the required notice before proceedings begin.

• At commencement of the tribunal proceedings. Disclose the funder’s name and address as required by section 62, allowing potential conflicts to be identified.

• At the emergency arbitrator or interim relief stage. Consider whether the application raises additional issues concerning funding, control or costs.

• On an application for security for costs. Assess whether information about the funder’s commitment to cover an adverse costs order is relevant and whether an affidavit should be provided under section 62(3).

Do parties have to disclose third-party funding to the tribunal in Nigeria? Yes. Section 62 requires written notice of the funder’s name and address to the other parties, the tribunal and, where applicable, the arbitral institution. Notice must be given at the commencement of arbitration for funding agreed before or at commencement, or without delay where the agreement is made later. Further disclosure of funding terms is not automatically required, although specific circumstances and applicable rules may make additional information relevant.

Security for Costs in Nigeria Arbitration: Tests, Evidence and Likely Outcomes

Security for costs can be a significant issue in funded claims, particularly where respondents seek protection against the risk of an unrecoverable costs award. Under section 52 of the Arbitration and Mediation Act 2023, a tribunal may, on a party’s application, order a claimant or counterclaimant to provide security for another party’s legal or other costs. This may take the form of a deposit, bank guarantee or another arrangement the tribunal considers appropriate. For a claimant relying on funding, an unexpected security order can disrupt proceedings and require further discussions with the funder.

Legal Tests Tribunals Apply

Section 52 gives tribunals discretion to order security for costs but does not prescribe an exhaustive list of factors for deciding an application. The relevant considerations will depend on the circumstances, the applicable arbitration rules and the evidence before the tribunal. Common considerations include:

• Impecuniosity of the claimant. Whether the claimant is likely to be unable to meet an adverse costs award. The existence of external funding may prompt questions about the claimant’s financial position, but does not by itself establish an inability to pay.

• Risk of non-enforcement. Whether a future costs award could realistically be enforced against the claimant, including where its assets are located in jurisdictions where enforcement may be difficult.

• Prejudice to both parties. Whether security would unfairly prevent the claimant from pursuing a genuine claim, balanced against the risk that the respondent may be unable to recover its costs if successful.

The presence of a funder does not automatically justify an order for security. Funding may indicate limited resources, but it may also demonstrate that financial support is available to pursue the claim. Under section 62(3), where a respondent applies for security for costs based on the disclosure of third-party funding, the tribunal may allow the funded party or its counsel to provide an affidavit stating whether the funder has agreed to cover an adverse costs order. The affidavit must be considered in deciding the application.

Evidence to Support an Application

A respondent seeking security should present focused evidence supporting the application. This may include the claimant’s financial statements or accounts, evidence of where its assets are located and any practical difficulties in enforcing a costs award, and relevant information about the funding arrangement. Where available, evidence that the funder has declined to cover adverse costs may also be relevant. Concerns about enforcement, including difficulties enforcing judgments or evidence of asset dissipation, may strengthen the application where supported by the facts.

How Claimants and Funders Can Resist or Avoid Security

Claimants and funders can take practical steps to address a security application. A funder’s undertaking to cover an adverse costs award may help address concerns about the claimant’s ability to pay, although its effect will depend on the undertaking’s terms and the circumstances. Other options may include placing funds in escrow, obtaining after-the-event insurance where available, or providing evidence that an adverse costs award could be enforced against an adequately resourced party.

A funder undertaking should clearly state:

• The scope and duration of the funder’s commitment to finance the arbitration.

• Whether the funder agrees to satisfy any adverse costs award against the claimant, including any applicable financial limit.

• The circumstances in which funding may be withdrawn and any protections against withdrawal that could leave an adverse costs award unpaid.

When will Nigerian tribunals order security for costs in funded claims? Section 52 gives tribunals the power to order security, while section 62(3) specifically addresses the relevance of a funder’s commitment to cover adverse costs. The claimant’s financial position, enforcement risks and potential prejudice to both parties may also influence the outcome. Third-party funding alone does not guarantee an order. Evidence of a funder’s commitment to meet adverse costs may help resist an application, but the tribunal retains discretion to assess the circumstances.

Funding Agreements in Nigeria Arbitration: Essential Terms and Model Clauses

The funding agreement determines how the arrangement operates when a dispute becomes difficult or circumstances change. A well-drafted agreement anticipates tribunal scrutiny, protects the claimant’s control of its case, and gives the funder appropriate commercial protections without allowing improper interference. In third-party funding arrangements for Nigeria-seated arbitration, drafting should be treated as risk management rather than a formality.

Key Commercial Terms

The agreement should address, at a minimum, the scope and limit of funding, the costs covered, the calculation and priority of the funder’s return, any step-in rights following termination, and how settlement decisions are made. Settlement control is often the most sensitive issue. Funders need protection against a claimant accepting an unsatisfactory settlement, but giving the funder unrestricted control over settlement may undermine the claimant’s autonomy and counsel’s professional independence.

Tribunal-Facing Clauses

Beyond the commercial terms, a well-drafted funding agreement should accommodate the tribunal’s procedural requirements. This includes express permission to disclose the funder’s identity and involvement as required by section 62 of the Arbitration and Mediation Act 2023, a commitment not to frustrate the enforcement of an award or costs order, and, where negotiated, an undertaking to cover adverse costs that the funded party may rely on when resisting an application for security for costs.

Illustrative clauses, which counsel should adapt to the circumstances, might provide that: “The Funder consents to disclosure of its identity and the existence of this Agreement where required by law or directed by the tribunal, subject to any applicable confidentiality protections.” Another clause might state: “The Funder shall not withdraw funding in a manner intended to frustrate the recovery of costs awarded against the Funded Party, subject to the termination provisions of this Agreement.”

Contingency Fees, Success Fees and Professional Ethics in Nigeria Arbitration

Third-party funding introduces another economic interest into the lawyer-client relationship, raising professional ethics issues that counsel must consider. The concern is not funding itself, but the risk that a funder’s financial interests or a success-based fee arrangement could interfere with counsel’s duty to act in the client’s interests.

Are Contingency and Success Fees Allowed?

Rule 50 of the Rules of Professional Conduct for Legal Practitioners 2023 permits lawyers to enter into contingent-fee agreements with clients in civil matters, whether contentious or non-contentious, subject to specified conditions. The agreement must be reasonable in the circumstances, must not be vitiated by fraud, mistake or undue influence or be contrary to public policy, and, where litigation is involved, there must be a bona fide cause of action. The rule also requires the lawyer to explain the effect of the arrangement and give the client an opportunity to consider a fee arrangement based on the reasonable value of the services.

These requirements should be distinguished from the funder’s entitlement to a return under a third-party funding agreement. Where a funder pays counsel’s fees or a success-based fee is proposed, the arrangement must be assessed carefully against the applicable professional rules. Rule 51 also restricts a lawyer from agreeing to pay or bear the client’s litigation expenses, although the lawyer may advance expenses in good faith for convenience, subject to reimbursement. Counsel should therefore verify that the proposed structure complies with the applicable rules and the Legal Practitioners Remuneration Order.

Managing Conflicts and Independence

The governing principle is that counsel’s professional duty is owed to the client, not the funder, regardless of who finances the case. Preserving that independence requires clear safeguards:

• Written informed consent. The client should understand the funding arrangement, any success-based element of counsel’s fees, and the information that may be shared with the funder.

• Information safeguards. The parties should define what confidential or privileged information may be shared with the funder and take steps to protect privilege and confidentiality.

• Control of proceedings. The agreement should confirm that strategic and settlement decisions remain with the client, acting on counsel’s advice, and that the funder’s role is financial rather than directive.

Comparative Table: Nigeria, England and Wales, and International ICC Practice

Practical Checklist: Deciding Whether to Use a Funder for a Nigeria-Seated Arbitration

Before committing to funding, decision-makers should assess the following ten points:

1. Merits. Is the legal and factual case strong enough to attract funding on acceptable terms?
2. Quantum. Is the potential recovery sufficient to leave a worthwhile net return after the funder’s share and other costs?
3. Enforceability. Are there identifiable, accessible assets against which an award can be enforced?
4. Counterparty risk. Is the respondent solvent and likely to remain so until enforcement?
5. Tribunal appetite. What do the chosen arbitration rules and relevant law provide on funding disclosure, conflicts and security for costs?
6. Cost of funding. Is the funder’s return proportionate to the risks and expected recovery?
7. Disclosure risk. What information must be disclosed, and how can commercially sensitive information be protected?
8. Security risk. How exposed is the claim to an application for security for costs, and what measures could address that risk?
9. Confidentiality. Do the funding documents adequately protect confidential and privileged information while allowing required disclosures?
10. Funding agreement terms. Do the control, settlement and termination provisions protect the client’s independence and clarify the parties’ obligations?

Respondent Strategies When Facing a Funded Claimant

Respondents in disputes involving third-party funding should treat funding as a reason to assess legitimate procedural options, rather than as an unfair advantage to be resented. The most useful steps include:

• Disclosure compliance. Check whether the claimant has complied with section 62 of the Arbitration and Mediation Act 2023 by disclosing the funder’s name and address. Where justified, seek further information relevant to a specific procedural issue.
• Prompt security for costs applications. Where the evidence supports concerns about recovering costs if the claim fails, consider applying for security early, before significant costs are incurred.
• Jurisdiction and enforcement mapping. Assess where the claimant’s assets are located and how a costs award could be enforced, building an evidential basis for any security application.
• Asset tracing. Where justified and lawful, investigate the claimant’s financial position to establish whether there is a genuine risk that an adverse costs award will remain unpaid.

Drafting Examples

The following clauses illustrate how funding agreements may address disclosure, adverse costs and settlement decisions. They should be adapted by counsel to the particular agreement and applicable law.

• Funding disclosure clause. “The Funded Party may disclose the Funder’s identity and the existence of this Agreement to the extent required by law or applicable arbitration rules, or as directed by the tribunal. The Funder consents to such disclosure, subject to any applicable confidentiality protections.”
• Funding undertaking on adverse costs. “Subject to the terms and limits of this undertaking, the Funder agrees to meet any adverse costs award made against the Funded Party up to [agreed amount], in accordance with the terms set out herein.”
• Settlement decision clause. “Settlement decisions shall remain with the Funded Party, acting on the advice of its counsel. The Funder shall be consulted in accordance with this Agreement but shall not compel the Funded Party to accept or reject a settlement offer.”

These examples are not statutory wording. In particular, an undertaking to cover adverse costs should specify its scope, duration, limits and enforceability rather than simply stating that the funder will support the claim.

Conclusion and Recommended Next Steps

Third-party funding in Nigeria has entered a new phase. The Arbitration and Mediation Act 2023 expressly recognises funding in arbitration and addresses disclosure, while the practical issues now include security for costs, funding agreement terms and professional ethics. For claimants and funders, the priorities are due diligence on the merits and enforcement prospects, clear funding terms that preserve the client’s control of the case, and appropriate safeguards for confidential information. For respondents, the focus should be on disclosure compliance, timely security for costs applications where justified, and careful assessment of enforcement risks.

Any party considering funding should ensure that the funding agreement, disclosure arrangements and counsel’s professional obligations are aligned before the arbitration begins. Obtaining advice on the specific circumstances can help prevent avoidable disputes over control, confidentiality and costs.

Sources

1. ICSID / World Bank, Resources on Third-Party Funding and Enforcement
2. Supreme Court of Nigeria, Official Website and Judgments
3. Nigerian Bar Association, Rules and Professional Guidance
4. UNCITRAL, Documents on Third-Party Funding and Arbitration
5. Chartered Institute of Arbitrators (CIArb), Practice Notes and Guidance